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Freight Factoring: What is it and how does it work?

A Truckstop.com user reviewing factoring on the Truckstop.com App while standing in front of a flatbed trailer..

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Running a modern freight company takes a lot of work, and you have to do a lot more than just perform owner or manager duties, which are by themselves significant. You’re also your own human resources department, marketing department, and accountant. Freight factoring (AKA load factoring) makes that last job a little easier by helping you manage your cash flow better.

But is freight factoring right for your trucking company? How does this financial service work? Here’s everything you need to know.

What is freight factoring?

First, it’s important to understand freight factoring in the trucking industry. The freight business basics are pretty simple: You pick up goods at one location, deliver them to the next, and the shipper or a broker pays you for that service. The amount you get paid minus your costs for delivering the cargo is your profit.

But usually, you don’t get paid right away. The industry-standard average is 40 days, and some companies can take up to 90 days to pay invoices. That’s a long time to wait for the money you need for living and business operating expenses.

With freight factoring, you can get paid right away, after you receive the invoice. You outsource the collections process to a third-party freight factoring company. They buy the invoice from you at a slightly reduced rate, so you can focus on hauling loads instead of worrying about collecting payment. This lets you cover weekly or monthly expenses without having to use a credit card, take out a loan, or dip into your savings.

How does freight factoring work?

Freight factoring does one simple thing: it pays you faster for work you’ve already done.

  • You haul a load from one place to the other.
  • You submit your paperwork to the factoring company rather than the broker.
  • You get paid right away.
  • Your broker pays the factoring company in 30-45 days.

In the case of Truckstop Factoring, there are some additional benefits:

  • We charge flat rate fees, so there are no surprises.
  • We are a non-recourse factoring company to protect you in case of customer financial insolvency (bankruptcy).
  • Full-service billing: Truckstop will invoice your broker, so you don’t have to.
  • Flexible cancellation: If the service is not working for you, cancel anytime.
  • There are no minimum volume requirements.

Factoring is different than Quick Pay. Quick Pay often has additional fees associated. Not all brokers offer a Quick Pay option, either. For ideal cash flow management, freight factoring is a much better way to go.

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What are the benefits of freight invoice factoring?

There are a few significant benefits to freight factoring. The first is faster pay once your submitted invoice is approved.

Get paid within 24 hours.

This allows for uninterrupted cash flow and operating capital for small or startup businesses. It also helps large companies maintain positive cash flow.

Reduce the accounting burden.

You effectively outsource your accounts receivables department to another company for a minimal fee. This takes a large part of the accounting burden off your plate so you can focus on the other tasks of ownership, management, human resources, and more. You also won’t have to spend valuable time making collection calls and chasing down invoices. The factoring company does most of the follow-up for you because they need to collect the money they’re now owed.

Qualify brokers.

Another benefit is that factoring companies will often qualify brokers for you, performing credit checks to ensure brokers are reliable. If you don’t have the resources or time to do this, freight factoring can help.

Stop worrying about getting paid.

Freight invoice factoring can be a convenient and valuable benefit for small and large businesses, whether established or just starting. It takes a lot of responsibility, worry, and time-consuming tasks off your shoulders.

What’s the difference between recourse and non-recourse freight factoring?

Before we talk about the specifics of recourse factoring vs. non-recourse freight factoring, it’s important to understand recourse. Recourse is a clause in your contract with a freight factoring provider that allows them to collect from you if your customer does not pay promptly (or worse, doesn’t pay at all).

All factoring providers have similar clauses. Non-recourse freight factoring is often unclear. Non-recourse means that if your customer declares bankruptcy or goes out of business between the time you submit your invoice and when they are supposed to pay the factoring company, the factoring company will not try to collect from you. This is a rare scenario. Non-recourse does not mean that the provider will not collect from you if your customer does not pay. It only covers you in the specific situation outlined above.

Overall, factoring businesses make their money by taking the risk of a later payment in exchange for a fee. If your customer fails to pay on time, the factoring company will “recourse” you. In other words, they will collect from you until the company pays. All factoring companies have some version of a recourse clause in their contract, and you should read and understand it before you sign.

A person reviewing an invoice.

What do freight factoring companies do?

Freight factoring companies take on some of the accounts receivable functions of your business. They will often invoice brokers for you, and the broker pays them, not you. They charge a fee for this service.

Freight factoring companies will also perform broker credit checks for you. Because they collect from the brokers or companies on your behalf, you are freed up to handle other aspects of running your business.

Truckstop Factoring offers an invoice factoring app so you can submit and track your freight factoring from nearly any device connected to the internet, making things even more convenient.

How do factoring companies assess risk?

Factoring companies take the risk of invoices going unpaid and/or difficulty collecting from you if your customer does not pay. Here are some things they look at before approving you:

  • What is your credit history? This is not as large an issue as some others, but it does play a role.
  • Are your customers creditworthy? More important than your personal credit score is the stability of the customers you bill. Will they pay their invoices on time? That’s why factoring companies often require that brokers or customers be approved before they will factor your invoices.
  • Are the invoices valid? While fraud in this area is rare, factoring companies want to verify that each invoice they process is genuine.
  • Do you have a diverse set of customers? If you rely on only one or two brokers, your invoices are at higher risk than if you have a larger customer base.
  • Is a lack of cash flow making it challenging to operate your business day-to-day?
  • Do you have slow-paying customers affecting your ability to pay bills on time?
  • Have you done credit checks to make sure a broker will pay before you take a load?
  • Are you wasting valuable time on collections calls that you could spend on other things?

If you answered yes to any of these questions or want a better way to deal with invoices, freight factoring may be an excellent way to go.

Freight factoring terms, rates, and qualifications

Before signing any factoring agreement, make sure you understand the fine print and what freight factoring will cost you.


Freight factoring rates vary based on your business volume. A factoring fee can range from 2.5%–5% per invoice. Some companies charge an initial setup fee for your first invoice. The most important thing to remember about fees, even flat fees, is to subtract them when figuring out your profit and loss on each load. Remember to account for those fees in your overall budget.


You might see the term spot factoring, which means you can pick and choose which invoices you factor. Many plans, including Truckstop, offer spot factoring options. Spot factoring is usually better for smaller freight trucking companies. Larger freight companies often use contract factoring to negotiate their rates, but they must factor all of their invoices.

Other terms come into play besides recourse and non-recourse agreements in trucking factoring contracts. Once you become familiar with them, it will be easier to read and understand the legal terms and what is right for you and your business.


Not everyone qualifies for freight invoice factoring. Your company will have to meet some requirements before being approved:

  • You’ll need to meet a minimum credit score determined by the factoring company.
  • It will take some time to get approved for your first factor.
  • You need to have been in business for at least 90 days.
  • Younger freight companies usually need to provide a minimum annual income or projected yearly income.

Larger freight companies generally have different standards to qualify for factoring.

How to choose the right factoring company

When looking for a freight factoring company, you’ll tell them a bit about your business. They’ll check your background and history and then make you an offer. You must check the offer carefully to make sure you understand the details.

Pay particular attention to these items:

  • Speed of payment. How fast you will get paid and under what circumstances.
  • Borrowing capacity. There will be a maximum credit line or factoring facility that caps how much money you can “borrow” against your outstanding invoices at any one time.
  • Program types. Do they offer recourse, non-recourse, or a mix of the two?
  • Advancement percentages. Depending on the agreement, you might get the entire payout amount or a portion while the factoring company holds some in reserve.
  • Aged invoices. Some factoring companies add aging fees, which go up the longer an invoice is unpaid. You will also want to check for clearance days, which define how long it takes for checks to clear. If the clearance day is 10 days, you will also pay aging fees for the 10 days it takes to be considered payment in full.
  • Contract termination. The freight factoring agreement will have a contracted length. To end the deal, you will have to give notice before the end date. You also want to make sure you understand what happens if you terminate an agreement when there are still invoices that the factoring company has not yet been paid for.
  • Additional fees. Some freight factoring companies charge additional fees, such as per-transaction costs, administrative or setup fees, or extra fees for faster pay. There may also be penalties for early termination.

Start factoring today.

Factoring mobile phone app example.

For many freight companies, small and large, freight invoice factoring is a way to outsource accounting and collections, ensure steady cash flow, and make business operations more efficient.

The key is to evaluate all the facts first. Look at what is right for you and your company, and read the fine print before signing any contract. Know your creditworthiness and that of your customers. Remember, if your customer doesn’t pay on time, you could still be held responsible for that invoice, so structure your finances accordingly. And finally, get work from a diverse group of brokers to ensure you are not overly dependent on one or two large customers.

You should be familiar with the terms, and your company will need to go through a qualification process. But once you are set up with a factoring service, there are many great benefits.

Have questions? Or are you ready to start freight factoring today? Sign up with Truckstop Factoring.

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